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Thinking: People are doing it wrong!

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Thinking:People are doing it wrong! Digital Elite Camp presentation. How cognitive biases and mental heuristics help to sell more. https://www.dreamgrow.com/thinking-cognitive-biases-in-sales-and-marketing/

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Thinking: People are doing it wrong!

  1. 1. Thinking: People are doing it wrong! How cognitive biases and mental heuristics help to sell more. Priit Kallas, Dreamgrow
  2. 2. Explanatory slides I have added the explanations as text slides between the original presentation slides. Take a look at the whole content combined to a blog post here.
  3. 3. Estonia
  4. 4. Not have enough Traffic? Understanding how people think can be applied to more situations than statistical methods like conversion optimization. I live in a tiny country of Estonia. The main problem we have implementing conversion optimization is that most of the time we do not have enough traffic. This means that sometimes the experiments do not reach statistical significance thresholds. In our case the problem is small population. Marketers from countries with populations in low millions or even less have this problem. Iceland for example. The same problem occurs when you are marketing to a very small target audience. When you have 100 or less conversions per month then the statistical results start to be shaky. Cognitive biases will give you a toolset that has been tested on larger audiences and found to increase desired results.
  5. 5. Deeper understanding of human behavior
  6. 6. Where and when we get the message has an effect on the result. Office, home, car, mobile, desktop...
  7. 7. Location and timing Where and when we get the message has an effect on the result. Office, home, car, mobile, desktop, etc. Research has shown that people who vote in schools are more likely to support tax hikes that will fund education. Results: 56% of voters voted for a pro-school budget when voting in a school vs. 53% otherwise. It’s statistically significant and was reproduced in a lab environment 64% of people voted for a fake pro-school budget when shown pictures of a school vs. 56% who voted for it otherwise. What this means for marketers is that you can target and time your campaigns so that you reach people in situations that are more favorable for you. Want to reach people on desktops? Consider getting a message to them during the working hours when they are most likely to be using a computer. To get them on mobile target early morning hours, later in the evening or commuting hours. Targeting people in the evening is especially sneaky as most of the willpower is depleted and people are more likely to be persuaded by marketing messages.
  8. 8. People don’t think!
  9. 9. People don’t think! We are all going through life on an autopilot. Our brains are using hundreds of heuristics to avoid spending too much energy. This is called System 1. People will choose what is comfortable and familiar whenever it is possible. We don’t like things that are complex and strange. Make sure you use simple words, easy to understand messages, familiar imagery, and other easy to digest elements in you r marketing. If your content makes people think too much you will lose sales.
  10. 10. Anchoring Effect First bit of information establishes a range of possibilities. Everything that follows will be anchored by that opening information.
  11. 11. Anchoring Effect First bit of information establishes a range of possibilities. Everything that follows will be anchored by that opening information. Anchoring effect is almost impossible avoid. This works even if you consciously know that the anchor is wrong and you are being manipulated. In one study two groups of students were given different anchors that were clearly wrong. They were primed with a question whether Mahatma Gandhi died before or after age 9, or before or after age 140. As expected the two groups answered differently the average answer being 50 in the low anchor group and 67 for the high anchor group. Just so you know Gandhi was assassinated when aged 78.
  12. 12. $20,000 website
  13. 13. 18 250 10,200 € or 12,100 €
  14. 14. Less-is-better effect
  15. 15. Less-is-better effect People tend to evaluate different aspects of the product or service depending on whether they are doing a side by side comparison or view items separately. Some examples from research: • seven ounces of ice cream overflowing in a small cup was preferred over eight ounces of ice cream in a much larger cup • a dinnerware set with 24 intact pieces was preferred over a dinnerware set of 31 pieces with a few broken pieces • a smaller dictionary was preferred over a larger dictionary with a torn cover • participants perceived people giving away a $45 scarf as more generous than those who gave a cheap $55 coat.
  16. 16. Availability heuristic We overestimate the importance of information that is available to us.
  17. 17. Running ads for winter tires when there’s a news about car crashes
  18. 18. Availability heuristic We overestimate the importance of information that is available to us. Running ads for winter tires when there’s a news about car crashes gets more people buying new tires. You can use that in by creating lots of ads that you can run instantly when the news that could influence the decisions of your buyers breaks.
  19. 19. Endowment Effect You are less likely to give up something you own, than you would be willing to pay to get it.
  20. 20. Endowment Effect You are less likely to give up something you own, than you would be willing to pay to get it. In a classic studyDaniel Kahneman, Jack Knetsch and Richard Thaler gave mugs to participants. When people felt that they own the cup then they valued it approximately twice as high as “just a cup”. Participants were willing to buy a mug for $5, but once they owned it, they wouldn’t sell for less than $10. This also happens in auctions when people placing bids feel the item is already theirs. This will lead to overbidding just to get “my” item. You can use endowment effect in many ways: • Scoring points – awarding loyalty points for buying will lead to situation where people will prefer your offerings just so they wouldn’t lose points. • Provisionally awarded bonus – Here you go, here’s your reward. It is yours if you reach this or that milestone.
  21. 21. Using Endowment Effect • Scoring points • Provisionally awarded bonus • Need for consistency • Sunk cost fallacy • Loss aversion
  22. 22. Endowment Effect You can combine these by awarding points in advance on conditions that have to be met in certain time period. Bonuses awarded in advance have been shown to increase buying frequency. In a study car wash customers had to collect 8 stamps to get a free wash. In one condition the stamp card had 8 empty slots for stamps. The second version of the card had 10 slots but two were already stamped. Redemption rate for the 10 stamp version was 34 percent versus 19 in the case with 8 stamps. Additionally the 10 stamp cardholders washed their cars more often with 2.9 days less between washes than the other condition. This technique also relies on our need for consistency. When people tend to commit to something then they are more likely to follow through if the commitment is somehow formalized. In this case the commitment device was the stamp card.
  23. 23. Sunk cost fallacy Sunk cost fallacy or escalation of commitment is a behavior where increasingly negative results in an activity will lead more investment of time, money, and even lives. People involved will go on in the same direction rather than altering the course or stopping altogether. The saying goes: • If you find yourself in a hole, stop digging! Seems that we are often unable to do that. Sunk cost fallacy is irrational behavior with negative consequences. This is how some unethical marketers get people to increase commitment even in situations where that will result in larger losses for them. For example Nigerian letter scammers may milk their victim for a long time before losses are big enough for them to stop.
  24. 24. We aspire to round number goals
  25. 25. We aspire to round number goals 20 pushups not 19. When people have a number as a goal then they tend to make that number round. Major League Baseball players are four times more likely to end the season with a 0.300 batting average than 0.299. The same is true of SAT score, training distances, and time. How do you use it? First thing when creating goals make sure they are round. Second, select a round number that is above your average goal. Third, don’t go so high that your audience feels that the number is unreachable. For example in a chain of gas stations ran a campaign where you could win a car by pumping exactly 33.00 liters of gas. That number was above the average but not too much.
  26. 26. IKEA effect Disproportionately high value on things that you partially assemble, such as IKEA furniture... ... regardless of the quality of the end result.
  27. 27. IKEA effect When you work on something then you will place disproportionately high value on that thing. IKEA furniture is one of the best examples of this. And it does not matter what is the quality of the end result. Ikea effect is a psychology tool you can use in onboarding process. Give your users simple steps to get something done and then they will be more likely to complete the whole process. The results can be amplified by added endowment effect and giving out rewards. You should keep in mind that IKEA effect only works when people are able to complete the task. If they fail at the task then they lose interest.
  28. 28. Just add water! Give people easy first steps to put in their own effort.
  29. 29. Just add water! To get your audience moving towards endowment and IKEA effect give them easy first steps to put in their own effort. Begin with something that is very easy to do and make the tasks harder step by step. This will ensure that the largest number of people will reach the goal you have set.
  30. 30. Loss aversion
  31. 31. Loss aversion Study after study has shown that we try harder to avoid loss than gain rewards. The relationship between losses and gains is about two to one. This means that if you avoid losing $5 you get more satisfaction than finding $5. Finding $10 is about the same value. There’s some experimental evidence that loss aversion is stronger when we have to work for results and compare ourselves to others in a competitive situation. In marketing you can use loss aversion to bring back existing customers through rebates and collected loyalty points. In SAAS model you can expect people who have put in more effort in trial period convert to paying customers at a higher rate. You can test this in your own marketing by framing the same transaction in as a loss or as a gain: would you rather get a $5 discount, or avoid a $5 surcharge? The price customers pay at the end is the same but the frame changes how people think about it.
  32. 32. Choice-supportive bias When you choose something, you tend to feel positive about it, even if the choice has flaws.
  33. 33. Choice-supportive bias When you choose something, you tend to focus on positive feelings about it, ignoring the flaws your choice has. We tend to amplify the positive qualities of the choices we have made and downplay the attributes of other options we had at the time of decision. Studies show that memories about our choices tend to be distorted in predictable ways. That also applies to ignoring the downsides of our choices. First our opinion about our actions will be biased but this bias can also change our future actions. For example this is a big part why we keep using one brand over another. Choice- supportive bias may be one of the most important psychological factors behind Apple becoming the most valuable company in the world. You can boost choice-supportive bias in your marketing by active post-purchase communication that highlights various aspects of the product or service. In a generic form “Did you know you can do X” will help you give more satisfaction to your new customer. This will also increase the potential for repeat purchases. A special case of this is post-purchase rationalization where people actively persuade themselves through rational argument that a purchase was a good value.
  34. 34. Post-purchase rationalization People persuade themselves through rational argument that a purchase was a good value. 576ppi Samsung Galaxy S5 LTE-A
  35. 35. Unit bias We believe that there is an optimal unit size
  36. 36. Unit bias We want to finish a given unit of a task or a unit. We believe that there is an optimal unit size and we want to get through to the end receiving satisfaction from completing the unit. This is incredibly strong driver in food industry portion sizes and healthy eating. Six pack, larger bottles, and plates. This is also a great tool to get people to finish tasks. Give them a checklist or a set of tasks that have a defined end point and the completion rates will be higher than for an open ended activity
  37. 37. Small site, no data? Important to understand what makes users tick. Talk with them, involve them in the process.
  38. 38. Teaching and using statistics did not develope an intuitive sense of the reliability of statistical results in small samples. Our judgments were biased... - Daniel Kahneman
  39. 39. Confirmation bias We search, interpret, and recall information in a way that confirms our beliefs and hypotheses.
  40. 40. Confirmation bias We search, interpret, and recall information in a way that confirms our beliefs and hypotheses. In marketing we can use the confirmation bias by asking leading questions. For example in a study people were asked about their social lives in two different ways. First “Are you happy with your social life?” or second “Are you unhappy with your social life?” In the first condition people felt that they were more satisfied than participants in the second group. Related to confirmation bias is preference for early information. Great copywriters know instinctively that the word order influences how we perceive ideas. This has been confirmed by research. When you list positive aspects before the negative people will form a more positive impression of someone. In the experiment some participants were presented a list beginning with positive words “intelligent, industrious, impulsive, critical, stubborn, envious” and others got the same list in reverse.
  41. 41. Confirmation bias But I didn’t add confirmation bias here as a marketing tool. For you as a marketer it is important to avoid confirmation bias in your own work. Whenever you experiment with different marketing tools make sure the results are really there and not just figment of your imagination. Try to contradict your own ideas so you will understand what’s working and what’s just a coincidence. This will make you better marketer and you will build a cache of tools that work more often than they don’t.
  42. 42. Observer- expectancy effect When a researcher expects a given result and therefore unconsciously manipulates an experiment or misinterprets data in order to find it
  43. 43. Observer-expectancy effect This is another cognitive bias that you as a marketer should avoid. This happens when a marketer expects a given result and therefore unconsciously manipulates an experiment or misinterprets data in order to find it. Observer-expectancy effect is most notable when analyzing data and discussing the results. Most of us have an opinion about what the results of a campaign mean and tend to lean towards the explanations we expected. To avoid potential mistakes try to be as objective as possible.
  44. 44. Hyperbolic discounting People want an immediate payoff rather than a larger gain later.
  45. 45. Hyperbolic discounting People want an immediate payoff rather than a larger gain later. The discounting is larger for sort initial periods of up to one week. For longer periods ranging from 10 to 21 weeks the decrease in perceived value is slower. For marketers this means that you should structure the payment plans and bonuses in a way that potential buyers feel the current value they get and ignore the expenses that come with the decision later. Some examples of that include: • Get your new smartphone now, pay only $49/month for two years. • Get your credit card now, first month 0% APR later 20%. • First 3 months free, $X after that. We have all seen this type of advertising. Time and again most people will take these deals and feel totally fine. We want instant gratification, consequences be damned.
  46. 46. The Current Moment Bias Some of us would rather experience pleasure now, while leaving the pain for later.
  47. 47. The Current Moment Bias When we have to make a choice then we often chose to have pleasure now and leave the pain for later. Would you have to decide what you will have for snack next week your choice between healthy and tasty will then to be healthy. The same choice right now usually leads to a less healthy but tastier option. A 1998 study showed that, when making food choices for the coming week, 74% of participants chose fruit. But when the food choice was for the current day, 70% chose chocolate.
  48. 48. Bias blind spots We see cognitive biases more in others than in ourselves.
  49. 49. Bias blind spots Of course, the last two cognitive mistakes are something you would never make. The reason you think that is that we see cognitive biases more in others than in ourselves. Everyone thinks that they are less biased than other people. We think we know how and why we make our decisions and we know that we don’t have a bias. We are objective and reasonable people after all. However, most of our decisions are the influenced by unconscious processes and we can’t see them. Unconscious processes are hidden leading us to think we don’t have them.
  50. 50. A bat and ball cost $1.10. The bat costs $1 more than the ball. How much does the ball cost?
  51. 51. Your name here
  52. 52. But you don’t need that...
  53. 53. Picture superiority effect Concepts learned by viewing pictures are more easily and frequently recalled than those that are learned by viewing their written word form counterparts.
  54. 54. Picture superiority effect Concepts learned by viewing pictures are more easily and frequently recalled than those that are learned by viewing their written word form counterparts. Research shows that images are most important elements of print advertising. This result is the same for consumer and business audiences. A lot of research has been done on print advertising. Print is not the most important advertising format in 21st century but some of the ideas can be applied to digital medium. Always use images in your content, product, and service pages. Larger and higher quality images tend to make ecommerce sites convert better. While it’s clear that you should have great product images. What to do when you have a service like accounting? You can’t easily take a picture of accounting and use that. So, most marketers fall back to clichés. A lady with glasses and a calculator, businessmen shaking hands and smiling into camera…
  55. 55. Picture superiority effect Please don’t do that! Jakob Nielsen’s studies have shown that these images are like Teflon to people, their eyes will slide right over them. Avoid images that do not add value to the content. Back to our accounting example. What to use in the place of smiling businessmen? Draw a graph of the process how you make your customers lives easier. Ask a designer to make it look beautiful and use it. The same approach works for many complex services. Visualize, then simplify.
  56. 56. Cognitive biases and mental heuristics • 92 Decision-making, belief, and behavioral biases • 26 Social biases • 51 Memory errors and biases • https://en.wikipedia.org/wiki/List_of_cognitive_biases • https://en.wikipedia.org/wiki/List_of_memory_biases

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